Corporate Entities and Corporate Governance

While the identification of the corporation with a society will be regularly made in these pages, it is necessary as well to attempt to see the corporation as precisely what it is. In order to assess the import of the pursuit of corporate criminals in terms of the damage they inflict upon both business and society, the best possible understanding of the internal mechanisms of the corporation must first be had. Only then can both areas of potential conflict, internal and external to the corporation, be evaluated properly, for such an understanding goes to the particular nature of the entity itself.

Parallels to society notwithstanding, a corporate entity actually more nearly resembles a framework within a society: its government. Quite obviously, the origins differ, for a corporate entity is invariably begun to provide commercial opportunity and profit. Nonetheless, there are striking similarities. Both corporation and government rely upon structures and layers of authority and labor; both demand maintenance to meet the degree of complexity and size of the entity; and both must, despite gains in size, serve to fundamentally promote a unified goal: “In the element of compulsory unity, corporations are distinguished from most other associate bodies, and resemble most nearly the state itself”. Everything working within the corporation and the government must, in some fashion, promote the welfare of the entity, the over-all well-being of all concerned, and be directed to achieving the proscribed ambitions of it.

There is another identification as well, and one which powerfully goes to the need for lapses in proper corporate governance to be sufficiently addressed by the law: accountability. In corporate arenas, accountability and governance are essentially synonymous, for accountability goes far beyond a general awareness and regard for the observance of legal and ethical standards. It translates to an active commitment to the corporation's welfare, as it oversees management decisions in regard to both employee issues and identifying investment opportunities, a correct emphasis of corporate energy on desirable projects and goals, and the crucial links between all stakeholders and the public/societal presence. Simply, there is no corporate governance of any meaning without accountability.

This enormously influential element of accountability inevitably goes to circumstances wherein corporate crime is committed, for clearly only an absence of true accountability may allow for such an occurrence. When this happens, all eyes typically go to the directors of the corporation, for they are usually invested with the power to make choices deliberately criminal, or as crimes of omission and/or neglect of the law. Today, there exists a somewhat surprisingly heated debate regarding this target. As will be shortly noted, both the public and the law demand a “face” be attached to a wrongdoing, as it does indeed often occur that a single, highly-placed director is guilty of corporate criminality. However, other schools of thought lean more towards treating the corporation itself as the offender, operating on the rationale that penalties imposed upon it must carry over to those responsible for them. The logic is basic: punish the entity, and the entity will in turn penalize the cause of the punishment.

There is, as well, another concern, and one which ironically goes to the preservation of the corporation: “Holding directors responsible (for crimes) may lead to risk-averse policies that dampen the zealous drive for profits”. In other words, the corporation which has suffered from the damaging publicity and sanctions imposed due to the identified actions of a director may respond by adopting too cautious a business model, and undercut its own potential and effectiveness. This is a critical consideration, for it reflects the society's awareness of the import of the corporation to its well-being. As regards a corporation's fiscal life, targeting individual directors may well be the cause of extreme governance detrimental to the corporation's interests. However, the punitive approach that focuses on the corporate identity, rather than individual directors, consequently serves to emphasize as actual beings both corporate governance and its status as entity. Moreover, such an approach acknowledges the power of the corporate entity to essentially govern itself in a fashion, and in a manner trusted to better maintain its stability and ethics.